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Analysts See Minor Boost for Housing in the Fed’s Plan

A home for sale in Palo Alto, Calif., last month.Credit
Paul Sakuma/Associated Press

WASHINGTON — The Federal Reserve’s ambitious effort to spur the recovery by aiding the housing market is likely to have a modest effect on home sales, given the pervasive weakness in the real estate market and the economy, analysts said Friday.

“The incremental benefit of slightly lower mortgage rates will be small,” wrote Paul Diggle, a property economist at Capital Economics, an international research firm, in a note to clients.

“After all, most borrowers in a position to refinance have probably already done so. And it’s not obvious why a would-be buyer who wasn’t tempted by a 3.7 percent mortgage rate would be by, let’s say, a 3.25 percent rate,” he wrote.

Others echoed that view, saying that the Fed program would support a recovery at the margins of the housing market, but that lower mortgage rates themselves would not be enough to spur a stronger turnaround.

On Thursday, the Federal Reserve announced a third major round of asset purchases intended to bring down interest rates and increase employment.

“While the economy appears to be at a path of moderate recovery, it isn’t growing fast enough to make significant progress reducing the unemployment rate,” Ben S. Bernanke, the Fed chairman, said at a news conference on Thursday. “The weak job market should concern every American.”

The Fed pledged to buy mortgage-backed securities at a pace of about $40 billion a month for an indefinite period of time. The effort is expected to increase prices and demand for those securities and push down mortgage rates, already near record lows. That might encourage more families to refinance their mortgages and others to purchase a home, with ripple effects through the real estate industry and the rest of the economy.

Analysts said it might help strengthen and quicken a tentative housing recovery. In recent months, housing sales and, in some cases, sale prices have ticked up. Builders have broken ground on new projects.

More than six years since the real estate bubble started to deflate, many housing analysts said, if cautiously, that they believed the worst was over.

The announcement seems a signal that the Fed is confident that housing is turning around — and that by itself could make home builders, mortgage financiers, real estate agents and buyers feel more confident as well, analysts said.

“There’s definitely a sense at the Fed that this channel could be one of the more promising channels,” said Joseph E. Gagnon, a senior fellow at the Peterson Institute for International Economics. “Sometimes people are looking for a reason to be optimistic,” he added.

On Thursday and Friday, financial markets cheered the Fed’s announcement. Stocks climbed, as did the price of many of mortgage-backed securities.

But housing analysts cautioned that the Fed effort was no panacea. Millions of homeowners owe more on their mortgages than their homes are worth, leaving them in no position to sell. Millions more are unemployed or underemployed, and unable to afford a home. The foreclosure crisis is continuing and credit is tight, leaving many people who would like to buy a house unable to get a mortgage.

“The big obstacles for people who want to buy are saving enough for a down payment and qualifying for a mortgage, because credit is still tight,” Mr. Kolko said, saying that the Fed program would not directly address those problems.

Mr. Kolko and other analysts also noted that hundreds of thousands of Americans had already refinanced their mortgages to take advantage of rates near record lows. (Mr. Bernanke, for instance, refinanced his Washington home last year, taking out a 30-year mortgage with a 4.25 percent interest rate.) That leaves the pool of homeowners potentially looking to refinance smaller than it otherwise would be.

Still, some analysts said that the Fed’s promise to push mortgage rates lower and to keep them there would encourage servicers to expand their capacity.

“I think it will have a meaningful impact on the housing market,” said Mark Zandi, the chief economist at Moody’s Analytics. “The refinancing boom is being tempered by the lack of capacity to refinance loans, because mortgage servicers are at full capacity.”

Analysts also said that any effort by the Fed to make borrowing cheaper and to aid the economy would help the housing recovery — increasing construction employment, household wealth and many other facets of the economy in turn.

“This makes housing a little bit more affordable,” said Gus Faucher, senior macroeconomist at PNC Financial Services Group. “But more important, it is designed to give some confidence to households and financial markets that the recovery is going to continue.”

Mr. Zandi said: “The main constraint on the recovery has been the housing market. Anything you can do to lift housing will have significant benefits for the economy.”

A version of this article appears in print on September 15, 2012, on page B4 of the New York edition with the headline: Analysts See Minor Boost for Housing in the Fed’s Plan. Order Reprints|Today's Paper|Subscribe